REITs See Increasing Demand for Office Leasing Deals

In a new article from CoStar Group, notes from recent earnings conference calls reveal that REIT landlords have made special note that they see demand for 2014 office leasing deals increasing. CoStar Group reported that the overall U.S. office vacancy rate continued to decline, dipping from 12.7% at mid-year 2012 to 12.1% as of June 30, 2013, and projected to move steadily toward a 10.5% - 11% vacancy range by 2016. Some quotes on the state of the markets from industry leaders follow:

"I think [recovery] is probably a little early for the suburbs," said Marc Holliday, CEO of SL Green Realty Corp. "The financing markets are still not terribly liquid and the sale markets -- there's not a lot of transaction activity. So we're still in a hunker-down mode out there, trying to block and tackle and do as much leasing as we can in some very challenging markets."

"We continue to see demand for new properties in strategic location," said Steve Budorick, executive vice president and COO of Corporate Office Properties Trust. "Our development leasing goal for 2013 was 400,000 square feet. We did 100,000 square feet in the first quarter and over 460,000 square feet in the second quarter alone, putting total development leasing for the year well over a half of million square feet."

"Most office construction that is occurring is build-to-suit, but that varies by market. The strongest markets, such as San Francisco, San Jose and Houston, are seeing speculative construction due to a lack of suitable space available in the market," said Andrea Cross, national office research manager for Colliers International. "We also are seeing tenants in industries in which the competition for talent is fierce, notably tech and energy, building high-quality office space with amenities to attract and retain workers."

"You're seeing a greater number of smaller type deals at $100 a square foot being done than at any time in the past. You're seeing an improving national economy and a very strong local economy," said Steven M. Durels, executive vice president and director of leasing of SL Green Realty. "So I think the fundamentals are there and it's at a point in time that job growth continues to get us to a point of supporting the demand that we'll enjoy that spike in rents."

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